Seventy-five years ago, North Dakota's legislators were worried about deposits leaving the state for large banking centers like Minneapolis. So the state opened up its own bank.

Today, Bismarck-based Bank of North Dakota is the only stateowned bank in the country, and it's thriving. Boasting $900 million of assets and robust profits, Bank of North Dakota has become the state's predominant economic development bank.

At its helm is 37-year-old John Hoeven, a community banker who has steered the bank back to its original mission -- economic development -- after it strayed a few years ago into a nearly all correspondent banking role.

His approach has been to reevaluate "why the bank was created...refocus on that fundamental mission, and make sure that we're accomplishing it."

To be sure, Bank of North Dakota is an unusual animal. It employs 175 people and has four main divisions: lending, retail and bank operations, trust and investments, and student lending.

The bank promotes agriculture and business development in the state by making loans to new and existing companies. It participates in loans with other banks or economic development groups, including the Small Business Administration; this way it can spread out risk to its balance sheet.

Many of its loan programs are legislated and funded by the state, such as a beginning-farmer loan program and a business loan program.

The bank differs from commercial banks in other ways, too. By law, state funds must be deposited in the bank, and they are the bulk of its deposit base. Because it is a state institution, the bank does not pay federal income tax. It also is not required to have federal deposit insurance; deposits are guaranteed by the state.

The bank's board of directors is the state's industrial commission, which includes the governor, attorney general, and commissioner of agriculture.

It also has a five-member advisory board, and is subject to state legislation.

Mr. Hoeven characterized the set-up as "collaborative" rather than restrictive. Working for the bank "combines aspects of banking and state government and economic development," he said.

Despite its tax-exempt status, bankers see Bank of North Dakota as an ally and don't criticize it the way they do credit unions, which also don't have to pay income taxes.

"I think for the most part, the Bank of North Dakota is thought of quite well by the bankers in North Dakota," said Steve Stenehjem, president of $195 million-asset First International Bank and Trust, Watford City.

Mr. Stenehjem recently worked with the state bank to provide a $500,000 loan to a cattle cooperative feeding program.

"There's been a new willingness to get deals done" since Mr. Hoeven took charge in 1993, Mr. Stenehjem said.

Other bankers feel equally upbeat about the bank. A survey conducted last year by the North Dakota Bankers Association reported that 39% of the 82 respondents said state government economic development programs -- including the Bank of North Dakota's -- improved economic conditions in the state. Just 7% found fault with the programs.

Created along with a grain mill and elevator, which are also in business today, the Bank of North Dakota's objective was "for North Dakotans to take control of their economic destiny," Mr. Hoeven said.

However, perceptions were different not long ago, when the bank became very conservative after suffering loan losses in the 1980s.

Falling farm and energy prices in the late 1970s and early 1980s hurt the state's two main industries. In an effort to help diversify the state's economy, the bank financed agribusinesses.

But it financed most of them alone and when many failed, it incurred substantial losses.

From 1982 to 1985, the bank took net chargeoffs totaling $18 million.

In the wake of the problems, the bank tightened the reins on lending to the point that the state's bankers felt it was no longer helping them make loans.

"They weren't doing what they were supposed to be doing," Mr. Stenehjem said.

To spur lending, the state legislature passed legislation in 1991 requiring Bank of North Dakota's profits to be used to fund various development programs, some to be administered by the bank.

The legislature re-funded the programs in 1993 and they are on the agenda again for next year's session.

Mr. Hoeven joined the bank in 1993. He previously was executive vice president and chief executive of First Western Bank and Trust in Minot.

He spent 12 years at the bank, which his family owns.

Mr. Hoeven has high expectations for the Bank of North Dakota, and it seems to be responding.

For the first nine months of the year, the bank reported return on assets of 1.85% and return on equity of 17.61%.

Mr. Hoeven expects 1994 earnings to exceed last year's earnings of $17.5 million.

He's also optimistic about booking more loans and helping the state create more jobs and businesses.

At the end of the third quarter, the bank had $98 million in farm loans and $105 million in commercial loans. Mr. Hoeven sees loans reaching $400 million at yearend, up from $200 million at the beginning of 1993.

Mr. Hoeven, who holds an undergraduate degree from Dartmouth College and a master's degree in business administration from Northwestern University, has been praised for his leadership.

He was named North Dakota Small Business Financial Advocate of the Year and U.S. Small Business Administration Region VII Financial Advocate of the Year for 1994.

"John is doing an outstanding job," said Gary Preszler, the state's commissioner of banking and financial institutions.

A Government Gem

Bank of North Dakota

Owner: State of North Dakota

CEO: John Hoeven (pictured)

Headquarters: Bismarck

Assets: $900 million

ROA: 1.85%

Mission: Economic development


* Governor

* Attorney general

* Commission of agriculture

Hoeven's goal: "To refocus on the fundamental mission and make sure that we're accomplishing it."

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